NZ Business Failures Drop 20%

NZ Business Failures Drop 20%

Business failures in New Zealand have fallen by more than 20 percent in the past 12 months, indicating that most Kiwi firms have performed well amid the global economic slowdown.

New Zealand firms have joined advanced economies such as the United States, the United Kingdom, Germany and Canada in reporting falling insolvency rates since the June quarter.

According to Dun & Bradstreet data, the number of insolvent businesses in New Zealand dropped by 2.5 percent in the second quarter of 2011 and fell by six percent since the June quarter in 2010.

Business failures in 2010-2011

John Scott, Dun & Bradstreet New Zealand General Manager, believes that New Zealand's falling insolvency rate in recent months can be partly attributed to strong commodity prices and a low-interest rate environment.

"This is extremely good news for local businesses and it is hoped that the government's US$4.1 billion in fiscal spending for the ongoing Rugby World Cup event will help boost the domestic economy further and keep businesses operational."

The D&B Global Insolvency Index (GII), the first rating of its kind to rank business failures in more than 30 key economies, has ranked New Zealand as the second-best performing economy after Latvia in the September quarter.

New Zealand sits nearly 50 points lower than Australia, 25 points lower than the United States and 18 points behind the United Kingdom, and is classified as having a stable risk rating trend.

However, Mr Scott says that Kiwi firms should not become complacent, particularly in light of the European debt crisis and increased insolvency rates in Australia. With a year-on-year increase of 12 per cent, Australia now sits on par with indebted euro zone countries such as Italy, Spain and Hungary, despite having a booming mining sector.

"Australian business failures have surged in the June quarter with nearly 1000 insolvencies in July alone. Given that Australia is our largest two-way trading partner and accounts for $17.7 billion in total trade, it is crucial that Kiwi businesses do not take our lowered insolvency figures for granted."

Indeed, New Zealand's recent credit rating downgrade from AAA to AA+ by two credit rating agencies is an early warning sign that the insolvency risk could increase if firms are not careful with their cash flow management and trade payments.

Recent D&B trade payments data reveals that more than half of Kiwi firms were delinquent in making payments to each other during the June quarter 2011. Average payment terms of 46 days were significantly longer than the standard 30-day period and were nearly two days longer than 12 months ago.

Furthermore, high household debt and the continuing cost of earthquake reparations could present a further risk of failure for many businesses.

"Global uncertainty and a potential double-dip recession have weakened business confidence and consumer demand, which could derail New Zealand's track record of falling insolvency rates by impacting company profits and cash flow cycles," Mr Scott said.

"Low insolvencies do not mean no insolvencies- it is imperative that business owners implement good cash flow management strategies before it's too late."

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